Truth, Transparency, and Accountability with No Political Agenda

David Walker is an anomaly: a top U.S. federal official beholden to no political party. And he likes it that way. As comptroller general of the United States and head of the General Accounting Office (GAO), Walker is charged with improving the performance and the accountability of the federal government for the benefit of the American people. Fraud, waste, abuse, and poor management are his enemies and his allies are truth, transparency, and accountability.

Beginning his 15-year term in 1998, Walker strives to stay above the immediate fray as the GAO audits the government’s spending of taxpayer funds, warns the public about current fiscal dilemmas, and recommends specific actions to Congress. His job also includes foresight in signaling problems lurking beyond the horizon. In the congressional debate about President Bush’s $1.6 trillion package of tax cuts over 10 years, according to National Public Radio, Walker warned lawmakers to be prudent with the projected budget surplus and to take into account a demographic tidal wave he says will begin to arrive just beyond this 10-year period.¹ This wave, he said “can swamp our future fiscal picture and return us to the days of growing deficits if we are not prudent about our actions today.”

Walker recently answered our questions in his office at the GAO in Washington, D.C.

You’ve said your objective is to “speak the truth, enhance transparency, and ensure accountability.” How well has the GAO met this objective since you took your oath of office in 1998? 

The GAO is in the accountability business – our mission is to support the Congress in meeting its constitutional responsibilities and to help improve the performance and ensure the accountability of the federal government for the benefit of the American people. We set high integrity standards for ourselves so that our work is done in a professional, objective, fact-based, nonpartisan, nonideological, fair, and balanced manner. We want our work to be viewed by the Congress and the American people as reliable. So, basically, truth, transparency, and accountability are what we are all about.

Our work covers the full breadth and scope of federal activities and programs. Since 1998, when I took office, through the end of fiscal year 2003, we have testified in over 1,000 congressional hearings and made over 7,800 recommendations for improving government services to the public, improving core business processes, and implementing government-wide reforms. More importantly, during that period, our work resulted in $143 billion in financial benefits in the form of reduced federal costs and better-targeted spending or increased revenues. During fiscal year 2003, we generated a $78 return on every dollar that we spent. Based on this return on the taxpayers’ investment, I think we’re doing very well.

You’ve been trying to send a “wake-up call” to the U.S. government about its dismal financial condition. How much does fraud, waste, and abuse contribute to the mounting problem?  

I have spoken frequently about our nation’s true financial condition and large and growing long-term fiscal imbalance because I believe it is the number one issue that will impact the quality of life for Americans in the years ahead. Our long-term budget problems, however, are primarily structural in nature, rather than the result of fraud, waste, and abuse.

Specifically, our current fiscal imbalance is driven mainly by known demographic trends and rising health care costs, coupled with new homeland security and defense commitments. As we look ahead, our nation faces an unprecedented demographic challenge with significant budgetary and economic implications. Between now and 2035, the number of people who are 65 years old or over will double, driving federal spending on the elderly to a larger and ultimately unsustainable share of the federal budget.

Candidly, current government policies and programs are not fiscally sustainable over the long run due primarily to these factors. As a result, the “status quo” scenario and the “stay the course” approach to the deficit and fiscal matters are simply not viable options. Tough choices will have to be made by elected officials in order to address the nation’s large and growing fiscal gap. Basically, we need a three-pronged approach – we need to restructure existing entitlement programs, reexamine the base of discretionary and other spending, and review and revise our tax policy and enforcement programs.

To put the issues in perspective, the government’s gross debt was about $7 trillion as of Sept. 30, 2003. However, this figure does not include a number of existing commitments and obligations, including the gap between promised and funded Social Security and Medicare payments. If these items are factored in, the amount is six times larger.

Having said that, let me add that during tight budgetary times it is especially important that government programs be delivered in the most efficient and effective manner possible – without fraud, waste, and abuse squandering precious, scarce resources that are needed to provide necessary government services to citizens. Therefore, we must continue to deter and identify fraud, waste, and abuse. I’ll give you an example here: across the federal government, improper payments – which are payments that should not be made due to errors, unsupported claims, services not rendered, payments to ineligible beneficiaries, and payments from fraud and abuse – occur in a variety of programs. While complete information on the nature and magnitude of improper payments across the federal government is not available, the Office of Management and Budget has estimated that improper payments exceed $35 billion annually. This is a significant amount of money but less than 10 percent of the expected budget deficit for fiscal year 2004 and less than about 1.5 percent of the proposed federal budget for fiscal year 2005.

What federal programs and operations do you see at the highest risk of fraud, waste, and abuse, and why?  

Since 1990, GAO has identified selected government programs and operations as “high risk,” due to their greater vulnerabilities to fraud, waste, abuse, and mismanagement. GAO’s high-risk program has increasingly focused on major programs and operations that need urgent attention and transformation to ensure that our national government functions in the most economical, efficient, and effective manner possible. There are currently 26 areas that GAO has designated as high risk based on the work that we have done.² (See graphic on page 39.)

Since GAO’s high-risk program began, the government has taken these problems much more seriously and has, in many cases, made significant progress toward correcting them. For example, 13 areas have been removed from the list over the years, while others have been added. Clearly, we should have zero tolerance for fraud, waste, abuse, and mismanagement in government and more must be done to combat it. At the same time, it will never be zero, and we must address a range of other issues given the size of our fiscal gap.

I believe that our focus on high-risk issues has brought much needed attention to problems that are impeding effective government and costing taxpayers billions of dollars annually. GAO has made hundreds of recommendations to improve these high-risk operations. Moreover, the President’s Management Agenda is largely based on our high-risk list. Recently, GAO’s focus on high-risk problems has contributed to the Congress enacting a series of government-wide reforms to address critical human capital challenges, strengthen financial management, improve information technology practices, instill a more results-oriented government, enhance homeland security, and reform the Postal Service.

What are you and the GAO doing to reduce the cost of fraud, waste, and abuse against the government, which is paid for by American taxpayers?  

We at GAO have long been at the forefront of the government’s efforts to combat fraud, waste, and abuse. We have an aggressive forensic auditing program in which our auditors and investigators, along with those of various other accountability organizations, work hand-in-hand to uncover fraud in government programs. As I mentioned, our work identifies cross-cutting areas of high risk in government. We have sounded the alarm about problems that impede effective government and cost the government billions of dollars annually. Over the years, the results of our work have shed light on various major government programs that need urgent attention and transformation to reduce risk and increase economy, efficiency, and effectiveness, including the Medicare and Medicaid programs and large procurement operations in the Department of Defense and other agencies.

We have also devoted substantial effort to identifying improper payments made by the government. As I mentioned earlier, improper payments are payments that should not have been made or were made for incorrect amounts. Our work in this area laid the groundwork for the passage of the Improper Payments Information Act of 2002. The Act requires federal agencies to annually review all programs and activities that the agency administers to identify all programs and activities that may be susceptible to significant improper payments and report on the actions that the agency is taking to reduce improper payments over $10 million.

Can you give some case examples when waste, abuse, and mismanagement eventually developed into fraud? 

Yes. The Department of Defense’s credit card programs are a case in point. In a series of reports and testimonies beginning in 2001, we have highlighted pervasive weaknesses in the overall control environment and significant breakdowns in key internal controls over DOD’s multi-billion-dollar purchase card and travel card programs.

While the vast majority of purchase card and travel card charges are proper, not surprisingly, we also identified a number of instances in which these overall weaknesses and key control breakdowns resulted in fraud. We have identified cases of cardholder fraud, vendor fraud, and fraud resulting from compromised accounts related to DOD’s credit cards. We found numerous purchases of unauthorized items intended for personal use, such as jewelry, cosmetics, clothing, stereo equipment, food, and entertainment charged to government purchase cards. We also found instances in which DOD travel cards were used to purchase adult entertainment, dating and escort services, casino and Internet gambling, cruises, closing costs on a home, and a used car.

As a result of our work in this area, we issued an audit guide³ to help agency officials and auditors focus on internal control activities that will help in preventing or detecting significant instances of fraud, waste, and abuse. This audit guide is currently being used across government.

Government procurement has long been of concern for bribery, fraud and corruption. Recently, there have been media reports about companies like Halliburton getting no-bid contracts and overcharging the government by millions of dollars. What is the GAO doing to protect the American people from this kind of activity? 

While I can’t comment specifically on any individual cases, GAO has had long-standing concerns about the effectiveness of the federal acquisition process, and, consequently, we have invested heavily in reviewing this area. We have made numerous recommendations to both the Congress and individual agencies on ways to better ensure that the government gets what it pays for, on time, at a fair price, and without fraudulent, wasteful, or abusive practices. In fact, since 1990, this general area has been included on our high-risk list.

We have issued a number of reports over the years with recommendations on ways to ensure the government knows it is getting the best possible contract price, has good competition for its business, and is monitoring contractors’ performance. The Congress has enacted legislative reforms and agencies have revised regulations based on our work.

GAO will continue its vigilance over the federal acquisition process, especially since the government’s contracting workload is increasing significantly. More and more of the government’s work is being contracted out to the private sector, including an increasing number of contracts to secure and rebuild Iraq. Despite this increasing workload, the government’s contracting workforce has been reduced significantly over the past decade, which is a cause for concern. GAO continues to monitor and review this area, and, in fact, just completed a review of contracts awarded in fiscal year 2003 for work in Iraq.

To what extent should the provisions of the Sarbanes-Oxley Act be applied equally to governmental entities and their leaders? 

I believe that government officials need to get the message from the recent problems in, and reforms relating to, the private sector. I also believe that we need to use the related lessons learned to help modernize and transform the government’s accountability.

The Sarbanes-Oxley Act was passed in response to serious cases of fraud in the private sector, and is therefore directed at publicly held corporations. However, the substance of many of the reforms of the Sarbanes-Oxley Act is relevant for improving the overall transparency and accountability in government. For example, certain reforms that have potential applicability in government include those aimed at improving the performance of audit committees, providing for top management certifications of agency financial reporting, reaffirming management’s responsibility for internal control through management’s assessment of internal control over financial reporting, and providing additional accountability through the independent auditor’s evaluation of internal control.

Leaders of government organizations need to evaluate the extent to which the substance of these provisions has been implemented in their entities or could be implemented to improve accountability and management in government while reducing risk in a cost-beneficial manner.

Have some of the SOX provisions that could be relevant to the public sector already been enacted through other legislation or rulemaking? 

Despite some of the government’s challenges, I believe that the government has been in the forefront in several areas.

For instance, the auditor independence provisions of the Sarbanes-Oxley Act were largely built on the principles that we had already incorporated into Government Auditing Standards,⁴ which are promulgated by my office and used in the audits of federal activities, as well as state and local governments and not-for-profit organizations receiving federal assistance.

With regard to internal control reporting, the Financial Managers’ Financial Integrity Act requires the management of executive agencies to establish and report annually to the President as to whether the agencies system of internal control meets GAO’s Standards for Internal Control in the Federal Government.⁵  

We believe that the next logical step for the major federal agencies6 is to obtain auditor opinions on the effectiveness of internal control over financial reporting, similar to the requirements of the Sarbanes-Oxley Act. Several federal government entities have already taken this step, and we already provide an opinion on the effectiveness of internal control for the entities that we audit. At the GAO, as part of our annual financial audit, we have also received audit opinions on the effectiveness of our internal control over financial reporting since 1992.

Some state and local governments and federal government corporations and agencies have adopted audit committees, or “financial management advisory committees” in their approach to governance. In the federal government, such committees are intended to protect the public interest by promoting and facilitating effective accountability and financial management by providing independent, objective and experienced advice and counsel, including oversight of audit and internal control issues. Specific roles and responsibilities would probably vary by agency. I strongly support the implementation of financial management advisory committees for selected federal agencies based on risk and value added. In fact, GAO has had an audit advisory committee on a voluntary basis since 1995.

Are you consulting with the leadership of the Public Company Accounting Oversight Board, the offspring of SOX? 

I personally coordinate closely with the chairman and members of the Public Company Accounting Oversight Board (PCAOB), and my staff has regular, ongoing coordination with key PCAOB staff to keep track of emerging issues and positions in both organizations. The GAO has participated in PCAOB’s roundtable discussions and meetings to discuss priority areas and technical audit topics. We also submit written comment letters on PCAOB’s proposed audit standards.

The PCAOB’s issuance of new auditing standards will have a significant effect on how audits are conducted in the United States, potentially impacting entities not falling under the jurisdiction of the PCAOB. For that reason, I proposed the formation of the “U.S. Auditing Standards Coordinating Forum” to ensure regular coordination among the heads of the three different auditing standards setting organizations in the United States: the GAO, the PCAOB, and the Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants. The principals of all these entities have agreed to work together in a spirit of cooperation to promote harmonization and consistency where it makes sense, while at the same time acknowledging that we have different constituencies and mandates. We have also been invited (and have agreed) to participate as observers on the PCAOB’s Standing Advisory Group, which will advise the PCAOB on priorities. We look forward to working with the PCAOB in this important endeavor.

One of the Sarbanes-Oxley requirements is for CEOs and CFOs to certify the accuracy of their entity’s financial statements. Do the leaders of federal entities have a similar requirement?  

Federal statutes requiring audited financial statements generally instruct agency heads to prepare and submit financial statements, most commonly to Congress and the Office of Management and Budget (OMB). There is no separate requirement for agency heads to accompany their submissions with a certification that the financial statements are accurate. However, agency heads who submit financial statements to the Congress or OMB certainly have a responsibility to ensure that those reports are accurate, and agency heads are frequently questioned on financial results in Congressional hearings or through OMB inquiries on the details of their submissions. In addition, as I mentioned earlier, agency heads are required to report annually on their assessment of the adequacy of their systems of internal control and accounting.

This is an area that is worth considering for applicability to appropriate officials within government. Once again, however, it is the substance of the reform that is important rather than the means of certification, etc. Therefore, government officials and oversight entities need to evaluate whether additional actions are needed in order to ensure that top management in government agencies is placing the rigorous attention to, and quality assurance over, the production of reliable financial statements and financial information.

The GAO Strategic Plan 2004-2009 says that “widespread financial management system weaknesses, poor record keeping and documentation, weak internal controls, and a lack of information have prevented the government from having the information needed to effectively and efficiently manage operations or accurately report a large portion of its assets, liabilities, and costs.” How can the government even begin to address some of these entrenched problems? 

Over the past two decades the Congress has enacted a series of management reform laws to improve the accountability and effectiveness of government programs. We believe that if these laws are properly implemented, they will provide the foundation for improving accountability in government. We have made thousands of recommendations over the years to improve financial management at government agencies, and there are currently significant financial management initiatives underway that have the potential to appreciably improve the quality of the federal government’s financial management and reporting. Of course, we will continue to put tremendous amounts of effort into this area. While the Department of Defense (DOD) represents the biggest challenge in this area, some progress is being made. I see no reason why the government cannot eventually become the gold standard for accountability! It will, however, take time, especially in connection with DOD.

I know you have been a proponent of human capital reform in the federal government. According to a paper from the Office of Personnel Management, “the federal white-collar pay system sends and reinforces the message that performance does not matter.” What initiatives are currently underway to address human capital issues in the federal government? 

The GAO has been in the forefront on the issue of addressing human capital issues in the federal government. In 2001 we placed the lack of a strategic approach to human capital management in the federal government on our high-risk list. The basic problem, which continues today, has been the long-standing lack of a strategic and modernized approach to marshalling, managing, and maintaining the human capital needed to maximize government performance and assure its accountability.

In response to the problems, we have provided tools to help agencies help themselves in this area. We also believe it is our responsibility to lead by example. We have identified and made use of a variety of tools and flexibilities to modernize and improve our own compensation and human capital management system. We have also sought and obtained additional human capital flexibilities. After all, as a multi-disciplinary accountability organization, our people are our most valuable asset!

The momentum has recently been accelerating across government to make strategic human capital management the centerpiece of the federal government’s transformation effort. In fact, many believe that more progress has been made in the past two years than the past 20 years. GAO will continue to champion the need for transforming and modernizing federal human capital policies across the federal government. We will also continue to “lead by example” in this and other areas.

How are you able to fuel your optimism and energy when tackling such difficult issues that confront our nation, which is arguably the world’s largest enterprise? 

I wear many professional hats as comptroller general of the United States, including head of the GAO, lead partner on the audit of the U.S. government’s consolidated financial statements, and de facto chief accountability officer of the federal government. On a more personal note, I am a citizen, taxpayer, father, and grandfather. The information and perspectives that I have in each role all lead me to the same conclusion: we must come to grips with the daunting fiscal realities that threaten our nation’s, children’s, and grandchildren’s futures. Looking over the past few years, I am proud to say that GAO’s work has addressed many of the difficult issues that confront the nation, including diverse and diffuse security threats, changing demographic trends, quality of life issues, government transformation challenges, and increasingly difficult federal budgetary constraints.

I am committed to doing my part and working with the over 2,000 other GAO professionals who I have the honor and privilege to lead, to help the federal government work better for the benefit of all our nation’s citizens – both now and in the future.

* Additional authorizing legislation is likely to be required as one element
of addressing this high-risk area.

[Some source links referenced in this article are no longer available. — Ed.]

Dick Carozza is the editor of Fraud Magazine.

1. www.npr.org/programs/npc/2001/010423.dwalker.html
2. For more information, see U.S. General Accounting Office: High-Risk Series: An Update, GAO-03-119 (Washington, D.C.: January 2003).
3. U.S. General Accounting Office: Audit Guide: Auditing and Investigating the Internal Control of Government Purchase Card Programs, GAO-04-87G. (Washington, D.C.: Nov. 1, 2003.)
4. U.S General Accounting Office: Government Auditing Standards Amendment No. 3: Independence, GAO-02-388G. Washington, D.C.: January 2002), and Government Auditing Standards, 2003 Revision, GAO-03-637G. Washington, D.C.: June 2003) (Commonly referred to as the Yellow Book.)
5. U.S. General Accounting Office: Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: Nov 1, 1999.)
6. Major federal agencies include the 23 agencies currently under the Chief Financial Officers Act of 1990 and the Department of Homeland Security.